Credit default swap

A contract whereby one of the counterparties, the protection buyer, transfers some or all of the potential loss on an asset or a portfolio of reference assets that may result from a defined credit event and agrees to pay a premium at the time of purchase or periodically over the term of the contract, and the other counterparty, the protection seller, agrees to compensate the buyer, in proportion to the loss in value of the asset or reference asset portfolio, if the credit event occurs.